The California Court of Appeal, Second Appellate District, recently held that judicial review of legal challenges to fees subject to the Mitigation Fee Act (Gov. Code, section 66000 et seq) are reviewable under the arbitrary and capricious standard applicable to discretionary legislative acts. The Jenkins opinion has statewide significance because the decision clarifies the standard of review for challenges to zoning fees, use permits, building inspection fees, etc. In the past, fee challengers advocated less deferential standards of review for fees adopted by cities, counties and other public entities.

In the Jenkins case, plaintiffs Barratt American, Inc., Paladin Group and George Jenkins filed a lawsuit against BB&K's client, City of Corona (City), claiming that the City's building and safety fees violated the Mitigation Fee Act (Act) by over-collecting more than $10 million in fee revenues. At trial an independent study commissioned by the City showed that, as part of on-going effort to comply with the Act, the City periodically hires a consultant to study the costs of providing public services; then the City adjusts the fees used to finance such services accordingly.

The trial court found that the City’s method of determining fees did not comport with the Mitigation Fee Act. It then found that the City’s methodology was not reasonable related to the cost of services and that the Act requires a precise calculation of both fees and costs.

In reversing the trial court decision, the Court of Appeal held that the trial court “went beyond its limited scope of review.” The Court of Appeal held that the City “need only demonstrate a reasonable relationship between the fees to be charged, and the estimated cost of the service or program to be provided.”

Moreover, the Court of Appeal found that the Act does not require a yearly, dollar-for-dollar correspondence between fee revenue and costs. In this case the City used a ten-year average, consisting of nine years of actual data together with an 18-month forecast to meet the Act’s fee-setting requirements.

Although the trial court disapproved of the City’s “ten-year average” as an “imprecise method of determining the fee,” the Court of Appeal held that a “long-term forecast, using an average, is neither inherently unreliable nor so arbitrary as to be mere speculation.” Cities, counties and other public entities setting fees subject to the Mitigation Fee Act will benefit from the “arbitrary and capricious” standard of review for judicial challenges to fees, which recognizes their legislative discretion in the fee-setting process.

Congratulations to BB&K Partner, Jeffrey Dunn and BB&K Senior Associate, Marc Ehrlich on this successful Appeal's Court decision.